To quote: In Q3 2015, Philidor represented 6.8% of total Valeant revenue.

The reduction in revenue is about twice the revenue running through Philidor.

Observation 1: The revenue drop is more than just Philidor. Something else is going on. The bull argument to date is that Philidor is a small percentage of sales some of which will be caught elsewhere and thus can be ignored. However the drop in sales is twice Philidor (or more than twice Philidor for most points in the range).

Second - the "adjusted EPS* drops from $4.00 - $4.20 to $2.55 -$2.65. This is a drop at the minimum end of $4.00 to $2.65 0r $1.35 per share.

Depreciation and amortization, including impairments of finite-lived intangible assets was $726.4 million in the third quarter and $1,768.4 for the nine months.

In the third quarter EBITDA (defined as earnings before interest and tax and adding in depreciation and amortisation) was $447.8 + $726.4 million = $1174 million.

So so-called cash EPS will fall by roughly $463 million at a minimum.

This means that the run-rate GAAP EBITDA is $711 million or less.

Debt restrictions

Here is a debt indenture. This debt indenture places restrictions on Valeant if the debt to EBITDA ratio exceed 3.5 times. These do not cause an "event of default" but do limit Valeant's flexibility to buy back shares (they can't), incur most indebtedness or to make other investments.

Given that debt is about $30 billion and EBITDA run-rate is about $700 million per quarter there can be little question that Valeant is operating under strict loan-covenant based restrictions.

General disclaimer

The content contained in this blog represents the opinions of Mr. Hempton. Mr. Hempton may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Hempton's recommendations. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author. In particular this blog is not directed for investment purposes at US Persons.